A mixed bag of data from China overnight has failed to offer much direction for the markets at the start of the week and Europe currently looks set to open marginally lower as a result.
The Chinese data should really be seen as win win from an investor standpoint. The GDP reading was better than the market was expecting which ensures that the 2015 7% target is still achievable, while industrial production and fixed asset investment figures were so weak that further monetary and fiscal stimulus this year looks increasingly likely.
The full Chinese GDP report can be found here.
Of course people are going to question the validity of the GDP data given the turbulence in Chinese markets last quarter and the deceleration in its large manufacturing sector. This has been going on for some time though so we shouldn’t be entirely surprised that it didn’t fall short of the 7% target by more.
That said, it is promising to see efforts to transition towards a consumption driven economy are working, with services now accounting for 51.4% of the economy. It is therefore very important that we’ve continued to see stronger consumer spending numbers and wage growth in order to sustain it and maintain these higher levels of economic growth, regardless of whether we trust the figures or not.
There isn’t too much economic data being released this week which will put more of an emphasis on corporate earnings season which got properly under way last week. The strong dollar and an emerging market slowdown are going to be the key themes in many of this earnings season, the question is how much are they weighing on profits and how are the companies planning to overcome it. Given the softness in the economic data, you have to wonder whether a poor earnings season could be the final nail in the coffin for a rate hike in the foreseeable future.
Lael Brainard and Jeffrey Lacker, both of whom are voting members on the FOMC, are due to speak this afternoon. Lacker claimed last week that his views haven’t changed much since September, when he dissented against keeping rates on hold. His views are unlikely to have changed since then but it is worth monitoring his comments for any hint that he is becoming less hawkish ahead of next week’s meeting. Brainard on the other hand has shown herself to be among the doves recently and appears unlikely to support a rate hike this year.
For a look at all of today’s economic events, check out our economic calendar.